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Can Amazon reach $3,000? This bank thinks so...

May 29, 2019 08:51

Did you know that only ten years ago Amazon shares were trading under $100? After breaking the $500 price level in 2015 its share price surged higher all the way to $2,050 on September 2018. While the shares spent the next few months crashing back down to just $1,307, it now sits below the $2,000 price level with one analyst suggesting it could hit $3,000.

Trading Amazon

In this article, we explain what's happening with Amazon right now, why some are expecting significant upside in the stock and the possible trading opportunities happening right now. Let's begin!

Amazon: The $500 billion question

Analysts from the investment banking giant, Piper Jaffray, have shocked the market with an extremely bullish case for Amazon shares, suggesting they could reach the $3,000 price level by earliest mid-2021. At the very heart of their call is their formula in valuing the multi-billion company.

According to analysts at Piper Jaffray, there are two ways to calculate the value of Amazon: as a retail company or as a tech company. Retail multiples are traditionally lower than tech (or e-commerce) multiples and in the case of Amazon, the difference in the value is huge - to the tune of $500 billion.

If Piper Jaffray is correct, this means shares in Amazon are currently undervalued by around 65% from May 24th's closing price of $1,823. It will also make Warren Buffet look smart yet again as his company, Berkshire Hathaway, have been snapping up close to $1 billion worth of Amazon shares in recent months.

What does the rest of Wall Street think of Amazon?

Out of 45 surveyed brokers and investment banks on Wall Street, 40 have a buy rating on the stock and five have an 'overweight' rating. In fact, many investment banks such as RBC Capital Markets, Deutsche Bank and the Credit Suisse Group, initiated their buy ratings this year. Of course, this never means the stock price will just go up - but it does show that these big investors feel positive about the fundamentals of the company.

In fact, out of these surveyed brokers and investment banks, the average price target for the stock is $2,128, with the highest target at $2,450 and the lowest target at $1,850. While these are merely just the opinions of different analysts, the figures - along with Piper Jaffray's $3,000 call - do represent some possible upside in Amazon's share price from its current level. What does the chart tell us?

How to Trade Amazon Shares

The long-term price chart of Amazon below paints a significantly bullish picture. However, there have also been a few significant moves to the downside, signalling that traders and investors should always follow strict risk management principles.

Source: Admiral Markets MT5 Supreme Edition, AMZN, Weekly - Data range: from April 10, 2011, to May 27, 2019, accessed on May 27, 2019, at 7:57 pm BST. - Please note: Past performance is not a reliable indicator of future results.

Traders will often use support and resistance lines, such as trend lines, to help in identifying possible areas where buyers may return to the market after a dip. The long-term price of Amazon shows two possible trend support lines, that could be useful if shares fall significantly further:


Source: Admiral Markets MT5 Supreme Edition, AMZN, Daily - Data range: from May 3 2015, to May 27, 2019, accessed on May 27, 2019, at 8:04 pm BST. - Please note: Past performance is not a reliable indicator of future results.

Traders who prefer the lower timeframes, aiming to trade shorter-term moves, may look to the daily chart for possible areas of support where buyers may return to the market after a dip. The current daily chart of Amazon is offering two levels of support: a trend line and a horizontal support line both shown in black below:

Source: Admiral Markets MT5 Supreme Edition, AMZN, Daily - Data range: from July 25, 2018, to May 27, 2019, accessed on May 27, 2019, at 8:04 pm BST. - Please note: Past performance is not a reliable indicator of future results.

While support and resistance lines offer possible zonal areas where markets could turn, there is the possibility that a market may never reach a possible zonal area. However, the power of zonal areas is the fact IF the market does reach the area, the trader is ready and prepared and knows what to look for next. In most cases, it will be some form of price action based entries such as double bottom patterns or hammer candles.

Conclusion

While more and more analysts are starting to increase their price targets on Amazon shares, there are still significant headwinds towards reaching the $3,000 level. However, traders who are prepared with the right tools may be able to successfully navigate any move higher. How prepared are you?

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INFORMATION ABOUT ANALYTICAL MATERIALS:

The given data provides additional information regarding all analysis, estimates, prognosis, forecasts, market reviews, weekly outlooks or other similar assessments or information (hereinafter "Analysis") published on the website of Admiral Markets. Before making any investment decisions please pay close attention to the following:

1.This is a marketing communication. The content is published for informative purposes only and is in no way to be construed as investment advice or recommendation. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and that it is not subject to any prohibition on dealing ahead of the dissemination of investment research.

2.Any investment decision is made by each client alone whereas Admiral Markets AS (Admiral Markets) shall not be responsible for any loss or damage arising from any such decision, whether or not based on the content.

3.With view to protecting the interests of our clients and the objectivity of the Analysis, Admiral Markets has established relevant internal procedures for prevention and management of conflicts of interest.

4.The Analysis is prepared by an independent analyst Jitan Solanki, Freelance Contributor (hereinafter "Author") based on personal estimations.

5.Whilst every reasonable effort is taken to ensure that all sources of the content are reliable and that all information is presented, as much as possible, in an understandable, timely, precise and complete manner, Admiral Markets does not guarantee the accuracy or completeness of any information contained within the Analysis.

6.Any kind of past or modeled performance of financial instruments indicated within the content should not be construed as an express or implied promise, guarantee or implication by Admiral Markets for any future performance. The value of the financial instrument may both increase and decrease and the preservation of the asset value is not guaranteed.

7.Leveraged products (including contracts for difference) are speculative in nature and may result in losses or profit. Before you start trading, please ensure that you fully understand the risks involved.



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